The Behavior of Value and Growth Firms: Evidence from The Tehran Stock Exchange

Document Type : Research Paper


1 Department of Finance, Quinlan School of Business, Loyola University Chicago, Illinois, USA

2 Department of Financial Management, Faculty of Management, Islamic Azad University, North Tehran Branch, Tehran, Iran

3 Department of Economics, Alvarez College of Business, The University of Texas at San Antonio, Texas, USA


Recent studies show that the risk profile of U.S. value firms deteriorate significantly during economic downturns while growth firms show much less sensitivity under similar conditions. It is unclear whether value and growth firms behave similarly in other financial markets, particularly those representing emerging economies where growth firms are under-represented and typically unable to attract capital at favorable terms. In this paper, we investigate the risk dynamics of value and growth firms in the Tehran Stock Exchange (TSE) over multiple periods of stable and adverse economic conditions during the 1999 -2021 period. We find that during economic downturns, the risk profile of value firms deteriorates more substantially than that of growth firms in the financial market of Iran. More importantly, such differences are not dependent on the choice of the equity return model. Value firms have also delivered lower operating profits and maintained a higher degree of operating leverage than those of growth firms during both stable and adverse economic conditions. Overall, these results provide additional and more systemic support for the differential behavior of value and growth firms initially documented by earlier studies using U.S. data. The differential risk and return dynamics of value and growth firms in the Iranian financial market have important policy implications for economic development in other emerging economies exposed to dramatic social, economic, and geopolitical changes.


Main Subjects

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